The Human Factor Summary and Analysis

Meriwether wrote a letter to his investors at the beginning of September. "As you are all to aware, events surrounding the collapse in Russia caused large and dramatically increasing volatility in global markets throughout August. . . Unfortunately, Long-Term Capital Portfolio has also experienced a sharp decline in net asset value . . . it is down forty-four percent for the month of August, and fifty-two percent for the year-to-date. Losses of this magnitude are a shock to us as they surely are to you, especially in light of the historical volatility of the fund" (Chap. 9, p. 161).

The letter went on to say that the problems began when spreads began to widen in 1998 with Long-Term betting that the spreads would narrow. But panicking investors exited the market, which caused the spreads to further widen. He did not blame his traders for the...